REASONS
FOR JUDGMENT
Smith J.
[1]
The Appellant appeals from a Notice of
Reassessment dated June 11, 2012 wherein the Minister of National Revenue
(the “Minister”) disallowed her claim for charitable donations for the 2007 and
2008 taxation years.
[2]
In response to a Notice of Objection, the
Minister revised the reassessment to allow donations made to a church known as
Prince of Peace in the amount of $575 and $140 for the 2007 and 2008 taxation
years, respectively.
[3]
The Minister otherwise confirmed the
reassessment and disallowed the other charitable donations on the basis that i) the
charitable donations had not been made and ii) the receipts provided by
the Appellant did not contain the information prescribed by the Income Tax
Regulations
(the “Regulations”).
[4]
Moreover, the Minister reassessed the Appellant
beyond the normal assessment period on the basis that she made “a
representation attributable to neglect, carelessness, willful default or fraud”
pursuant to subsection 152(4) of the Income Tax Act (the “Act”).
[5]
There are four issues in this appeal and they
are as follows:
i)
Whether the Appellant was entitled to claim a
deduction of $9,825 for the 2007 taxation year for a donation made to an
organization described as Nations for Christ Ministries ("NCM");
ii)
Whether the Appellant was entitled to claim a
deduction of $5,200 for the 2008 taxation year for a donation made to an
organization described as Hour of Evidence Christian Fellowship (“HOE”);
iii)
Whether the Appellant was entitled to claim a
deduction of $3,000 for the 2008 taxation year for a donation made to an
organization described as Operation Save Canada’s Teenagers (“OSCT”); and
iv)
Whether the Minister was entitled to reassess
the Appellant beyond the normal assessment period pursuant to subsection 152(4)
of the Act.
[6]
The Appellant included a statement in her Notice
of Appeal that she should not be liable for gross negligence penalties. For the
record, I will simply confirm that this issue was not raised in the Reply to
the Notice of Appeal or at the hearing and on that basis, it is not properly
before the Court.
[7]
This appeal was heard under the informal
procedure and the Appellant testified on her own behalf. On behalf of the
Minister, the Court heard from Tony Thomas as well as a third party known as
George Nedelkov.
I. Factual Background
[8]
At all relevant times, the Appellant was
employed on a full-time basis as a high-school teacher by the York Catholic
District School Board but also reported employment income from Community Living
Toronto.
[9]
The Appellant indicated that she immigrated to
Canada several years prior to the taxation years in question though few details
were provided as to the date of her arrival or her country of origin.
[10]
She also indicated that she was raised in the
Catholic faith in her home country and that her children had also been baptized
in that faith.
[11]
The Appellant was a resident of the City of
Markham. She attended a local church known as Prince of Peace that she
described as a Catholic church but few other details were provided. It is noted
that the receipts issued by that church and accepted by the Minister were
issued jointly to the Appellant and her husband.
[12]
The Appellant explained that although she
continued to attend the Prince of Peace church from time to time, she decided
to change churches in 2007 and started to attend NCM, a Pentecostal church,
where according to her testimony, she was expected to “tithe”, that is make donations
equal to approximately 10% of her annual income.
[13]
She explained that she decided to donate between
$1,000 and $1,500 per month, that she would either pay in cash or by cheque and
that she would use an envelope provided by the church. A copy of the receipt issued
by NCM as filed with her income tax return for 2007 was produced as an exhibit.
[14]
When asked if she had any evidence of the
payments, the Appellant produced a series of cancelled cheques, each for
$1,000, made out to NCM but they were dated June 9, July 14 and
August 20, 2008.
[15]
When asked if she had cancelled cheques for
2007, she indicated that she did not as she had paid cash in 2007. She explained
that she would withdraw money from her bank account and donate between $150 and
$200 every Sunday, as long as her donations each month added up to about $1,000
to $1,500.
[16]
The Appellant indicated that in 2008 she started
attending a third church known as HOE also described as Hour of Evidence
Christian Ministry where she was also expected to tithe. She again wanted to
donate between $1,000 and $1,500 per month and did so by cash or by cheque. A
copy of the receipt issued by HOE as filed with her 2008 income tax return was
also produced as an exhibit.
[17]
When asked if she had cancelled cheques, the
Appellant produced photocopies of cheque number 108 dated November 3, 2008
and cheque number 109 dated December 3, 2008, each for $1,500. She
also produced bank statements setting out the cheque numbers and debit
transactions for the amounts indicated.
[18]
With respect to OSCT, the Appellant testified
that she was initially going to provide a cheque for $3,000 but that she
retrieved it and instead gave the organization $3,000 in cash on the basis of
what she described as their “urgent need for the money”. To support this, she
produced a cheque dated August 20, 2008 for $1,000 payable to NCM with the
hand‑written notation: “Check was returned and $3,000 in cash was issued”.
She explained that she had done the same for OSCT but that she no longer had
the cheque in question.
[19]
Turning to the evidence of the Crown, the first
witness was George Nedelkov. His evidence was that, at the suggestion of a tax
preparer known as Bright Accounting Services, he made a $200 cash donation in
2007 to OSCT and received a tax receipt for $2,000. Similarly, in 2008 he made
a cash donation of $400 and received a tax receipt for $4,000.
[20]
Mr. Nedelkov indicated that this tax preparer
explained to him that this would allow him to save taxes while making a
contribution to a worthy cause. He accepted this explanation and claimed the
full amount of the receipt as a charitable donation in his 2007 and 2008 income
tax returns.
[21]
Mr. Nedelkov also testified that his tax
preparer later provided him with a photocopy of 26 individual contribution
envelopes with various hand-written amounts totalling the face value of tax
receipt. This was intended as evidence that he had made donations on a weekly
basis although, by his own admission, he had only made a one‑time
donation at the time of the preparation of his income tax returns.
[22]
The Crown also called Tony Thomas, a compliance
auditor with the Canada Revenue Agency (“CRA”) who dealt with charitable
organizations and who was directly involved in the audit of OSCT that
eventually lead to the revocation of its charitable status in January 2011.
[23]
He explained that the charity’s book and records
were totally inadequate and that the quantum of the charitable receipts issued
by it vastly exceeded the cash receipts. He concluded that the issued receipts
did not reflect the actual amount of the donations received.
[24]
With respect to HOE, Mr. Thomas indicated
that while he was not directly involved in that audit, he reviewed the CRA
audit report prepared by the auditor who is now retired. It was clear to him
that the books and records of the charity were inadequate and it was apparent
that the value of the donation receipts by far exceeded the amount of money
actually received. In other words, it was clear that HOE was issuing what are
known as inflated donation receipts and its charitable status was revoked in
January 2010.
II. Applicable law
[25]
Subsection 118.1(1) of the Act provides
that a taxpayer is entitled to a deduction for charitable donations made to a
qualified charity and paragraph 118.1(2)(a) provides that the taxpayer
must file “a receipt for the gift that contains the prescribed information”.
[26]
The prescribed information that must be
reflected in the receipt is contained in section 3501 of the Regulations
which reads as follows:
(1) Every
official receipt issued by a registered organization shall contain a statement
that it is an official receipt for income tax purposes, and shall show clearly,
in such a manner that it cannot readily be altered,
(a) the name and
address in Canada of the organization as recorded with the Minister;
(b) the
registration number assigned by the Minister to the organization;
(c) the serial
number of the receipt;
(d) the place or
locality where the receipt was issued;
(e) where the
donation is a cash donation, the day on which or the year during which the
donation was received;
(e.1) where the
donation is a gift of property other than cash
(i) the day on
which the donation was received,
(ii) a brief
description of the property, and
(iii) the name and
address of the appraiser of the property if an appraisal is done;
(f) the day on
which the receipt was issued where that day differs from the day referred to in
paragraph (e) or (e.1);
(g) the name and
address of the donor including, in the case of an individual, his first name
and initial;
(h) the amount
that is
(i) the amount of
a cash donation, or
(ii) where the
donation is a gift of property other than cash, the amount that is the fair
market value of the property at the time that the gift was made;
(i) the signature,
as provided in subsection (2) or (3), of a responsible individual who has been
authorized by the organization to acknowledge donations; and
(j) the name and
Internet website of the Canada Revenue Agency.
[27]
It is well established that the information
prescribed in section 3501 of the Regulations is mandatory and that such requirements
“are not frivolous or unimportant”.
On the contrary “the information required is fundamental and absolutely
necessary” to ensure that “the indicated value is accurate and that the gift
was actually made”.
[28]
Before turning to the issue of the prescribed
information that must be reflected in an official receipt, I will add that the
word “receipt” itself is not defined in the Act though it is well established
that words are to be read in their entire context and in their grammatical and
ordinary sense and that reference to a dictionary definition may be
appropriate: State Farm Mutual Auto Insurance Co. v. The Queen and Federated Co-Operatives
Ltd. v. The Queen
and Blondin v. Canada.
[29]
The Canadian Oxford Dictionary defines “receipt” as “a
printed or written acknowledgement of the acceptance of goods or payment of
money” as well as “a printed statement issued by a cashier to a customer
detailing the items purchased and the means of payment (as in a cash
register receipt)”.
[30]
The Oxford English Dictionary defines a receipt as a
“written acknowledgement of money or goods received into possession or
custody”, and in Webster’s Ninth New Collegiate Dictionary it is defined as a “writing
acknowledging the receiving of goods or money”.
[31]
In other words, a receipt is a written document
delivered in exchange for the receipt of money, goods or services, reflecting
the actual amount of money or the fair market value of the property or services
received.
[32]
It follows that a document, though it bears the
title “receipt” or “charitable receipt” or even “official charitable receipt”,
may not be treated or accepted as such if it does not accurately reflect the
money paid or the fair market value of the property or services actually provided
in exchange.
[33]
Assuming the Court is satisfied on the basis of
probative evidence that a receipt accurately reflects an actual donation, it
must also set out the prescribed information as contained in section 3501 of
the Regulations.
[34]
One of the leading cases on charitable receipts
and particularly inflated charitable receipts is David v. Canada, a decision of the Federal
Court of Appeal that involved several taxpayers who admitted to having made
cash donations equal to 10% of the face value of the donation receipts. Justice Scott
referred to the provisions of the Act and stated:
(81) The Act is meant primarily as a source
of revenue for the federal government. Parliament has also used the Act
to create incentives for private activities that benefit the community as a
whole. Registered charities are allowed to issue charitable gift receipts to
facilitate their funding.
(82) Pursuant to section 118.1 of the Act
and subparagraph 3501(1)(h)(i) of the Regulations, tax receipts
enable a taxpayer who makes a donation to obtain a non-refundable tax credit
based on the fair market value of his gift to a registered charity. The
non-refundable tax credit is a percentage of the cash donated or if the
donation is a property a percentage of its fair market value. The tax credit is
meant to entice the taxpayer to make donations because it also serves to reduce
his impoverishment as a result of the gift made.
(83) The Regulations have been
enacted to ensure that the charitable tax receipts are accurate and truthful
since the tax system in Canada is based on self-assessment. When cash is
donated, there is no documentary evidence available other than the mention of
the exact amount on the receipt issued by the registered charity. In the case
of a cash gift, as the entitlement and the calculation of the exact amount of
the tax credit is based on the official receipt issued by the registered charity,
it is in keeping that the absence of the amount of the cash donation on an
official tax receipt will result in a spoiled receipt, or as stated in the
French version of subsection 3501(6) of the Regulations: “le reçu
officiel est considéré comme inutilisable”, translated literally “it cannot be
used”.
[35]
The Court did not consider whether the inflated
donation receipts were valid receipts to begin with and the focus of the
analysis was whether they met the technical requirements of the Regulations. In
my view, that does not preclude a conclusion that inflated donations receipts
are not in fact receipts if the Court is satisfied that the donation was not
actually made and that the document that purports to be a receipt is in fact of
a fictitious nature.
III. Analysis and summary of findings
[36]
It is obvious that the Court must address the
issue of the Appellant’s credibility. In particular, it must be satisfied that
she was being honest and forthright and that her narrative of the facts was
both plausible and probable.
[37]
When I consider the Appellant’s testimony as a
whole, making allowance for the passage of time, I am led to the conclusion
that her testimony was vague and contradictory and that the documentary
evidence submitted was self-serving and of a doubtful nature.
[38]
To begin with, the Court has some difficulty
with the suggestion that the Appellant as well as her husband attended a church
where they made charitable donations on the basis of, as described by the
Appellant, “what they could afford”, and yet that she alone attended not only
one but two different churches on most Sundays where she was expected to give
the equivalent of 10% of her annual income.
[39]
The unchallenged evidence is that the Appellant
made nominal donations to the Prince of Peace. If these amounts reflected what
she and her husband could afford, how it is plausible or even probable that she
would attend two other churches that were not of her faith where she was
expected to donate an amount roughly equal to 10% of her employment income? I
find it highly improbable.
[40]
When the Appellant was asked to produce evidence
to support the purported charitable donation of $9,825 made in 2007 to NCM, she
produced copies of cheques made in 2008 that had not been claimed. When she
realized during the course of her examination that she did not have any
cancelled cheques for that year, she explained that she made only cash
donations in 2007. Given the amount of money involved, I find that the
Appellant’s last minute explanation stretches credulity and falls short of an
honest answer.
[41]
When asked why she had decided to attend NCM and
subsequently HOE, her evidence was vague at best. She initially explained that
she had moved and that these churches were closer to her home. However, during
cross‑examinations, she admitted that she had not in fact moved. Her new
explanation as to why she had changed churches was equally unconvincing.
[42]
With respect to the organization known as OSCT,
the Appellant testified that she initially prepared a cheque but later
retrieved it and instead made a cash donation of $3,000. I find that her
testimony on this issue was not credible.
[43]
With respect to both organizations known as HOE
and OSCT, I accept the Minister's evidence that they were both issuing inflated
donation receipts prior to the revocation of their respective charitable
status.
[44]
At the end of the day, the Court can only
speculate as to the amount of money, if any, actually donated by the Appellant
to the three organizations in question, and concludes that it is highly
improbable that the Appellant actually made donations equal to the face value
of the receipts submitted.
[45]
For reasons noted above, I conclude that
although the donation receipts in question are described as “official receipts”
or some variation thereof, they are not in fact receipts as that term is
ordinarily understood.
[46]
As indicated above, the Minister has taken the
alternative position that the receipts did not contain the prescribed
information as set out in Regulation 3501.
[47]
The Court finds that the receipt issued by NCM
is deficient since the name of the issuer is incomplete, it does not contain
the location where it was issued, it does not show the Appellant’s address or
the date of issue and finally, it does not indicate that that the amount was
received in cash.
[48]
The receipt issued by OSCT is equally deficient
in that it does not indicate the proper registered name of the charity or the
date of issue nor the location where it was issued.
[49]
The receipt issued by HOE appears to contain the
prescribed information. However, it clearly indicates that the Appellant made a
cash donation of $5,200 when her evidence was that she made the bulk of the
donation by cheque. In any event, I have already concluded that it was an
inflated donation receipt and on that basis, I find it is invalid.
IV. Assessment beyond the normal assessment
period
[50]
Having reached a conclusion as to the
Appellant’s credibility and the validity of the donation receipts, the question
that remains to be addressed is whether the Minister was entitled to reassess
the Appellant beyond the normal assessment period pursuant to subsection 152(4)
of the Act.
[51]
That provision provides that the Minister may
reassess a taxpayer who has made “any representation that is attributable to
neglect, carelessness or wilful default or has committed any fraud in filing
the return or supplying any information under this Act”.
[52]
One of the leading cases on this provision is College
Park Motors Ltd. v. Canada,
a 2009 decision of the Tax Court of Canada where Justice Bowie indicated at
paragraph 20:
(20) At the risk of redundancy, I wish to
reemphasize that the purpose of subparagraph 152(4)(a)(i) is not penal
but remedial. It balances the need for taxpayers to have some finality in
respect of their taxes for the year with the requirement of a self-reporting
system that the taxing authority not be foreclosed from reassessing in those
instances where a taxpayer’s conduct, whether through lack of care or attention
at one end of the scale, or willful fraud at the other end, has resulted in an
assessment more favourable to the taxpayer than it should have been. (…)
(My emphasis.)
[53]
Since I have already concluded that the
Appellant did not actually make the donations for which she claimed a
deduction, she must be taken to have known that the receipts in question were
of a fictitious nature notwithstanding the notation “Official Receipt”. She
nonetheless claimed those amounts in her tax returns for the 2007 and 2008
taxation years.
[54]
On that basis, I have no difficulty in
concluding that the Appellant made a representation this is attributable to
neglect, carelessness or wilful default or that she has committed a fraud in
filing her return for those years, and consequently, that the Minister was
entitled to reassess her beyond the normal reassessment period pursuant to
subsection 152(4) of the Act.
V. Conclusion
[55]
The Appellant had the onus of convincing the
Court on a balance of probabilities that she made the donations claimed for the
2007 and 2008 taxation years. I find that she has failed to do so.
[56]
For all the foregoing reasons, the appeal is
dismissed.
Signed at Ottawa,
Canada, this 19th day of August 2016.
“Guy Smith”
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